Finalisation of ‘lowest cost’ IRP included in growth action plan

13th July 2017 By: Terence Creamer - Creamer Media Editor

The finalisation of the “lowest cost” Integrated Resource Plan (IRP) for electricity has been included in a list of energy-related interventions unveiled by Finance Minister Malusi Gigaba as part of ‘Government’s Inclusive Growth Action Plan’ published on Thursday. Likewise, the National Treasury calls for a lowest cost Integrated Energy Plan.

The action plan has been formulated in response to confirmation that South Africa descended into its first recession since 2009 earlier this year, despite the easing of previous power constraints, as well as improvements in labour relations, commodity prices and growth prospects among the country’s major trading partners.

The National Treasury indicated that a lowest cost IRP should be finalised by February 2018, “taking into account extensive comments received during public consultation” on the draft IRP Base Case, released for public comment in November last year. The Department of Energy (DoE) received public comments until March 31.

The Base Case has been criticised for having included “artificial constraints” on the amount of onshore wind and solar photovoltaic (PV) capacity that could be included yearly. This led several stakeholders to call on the DoE to rerun the IRP in the absence of these constraints so that the Base Case could reflect a ‘least cost scenario’.

It has been widely speculated that the constraints on wind and solar PV were inserted to ensure that the future electricity mix to 2050, included a new nuclear build programme. However, even the 2016 Base Case indicated that the first new nuclear reactor would only be required from 2037, instead of the 2023 timeframe outlined in the 2010 IRP.

Nevertheless, State-owned power utility Eskom proceeded with the Nuclear New Build Programme request for information and received notification from 27 entities by the end of January that they would be responding by the April 28 submission deadline.

However, on April 26 the Western Cape High Court declared the processes hitherto used to procure new nuclear capacity to be unconstitutional and illegal, along with three nuclear-related intergovernmental agreements.

Energy Minister Mmamoloko Kubayi subsequently announced that government would not appeal that ruling and that the any nuclear procurement programme would need to begin afresh.

However, the new action plan has also called for a review of the “pace and scale” of new generation roll-out “under the circumstances of Eskom hardship and overcapacity up to 2021”. The action plan set an August 2017 deadline for finalising the review.

Since mid-2016 Eskom has refused to concluded power purchase agreements (PPAs) for 37 onshore wind and solar PV projects procured by the DoE, in 2015, during the fourth bid window of the Renewable Energy Independent Power Producer Procurement Programme.

‘SOFT SUPPORT’ FOR ESKOM

In June, Public Enterprises Minister Lynne Brown told Parliamentarians that the hardship was arising partly as a result of Eskom paying R2.14/kWh for electricity arising from the renewable-energy plants, while it was only able to charge consumers R0.84/kWh.

Brown’s statement has been criticised by the renewables industry, which notes that the tariff methodology makes purchases from independent power producers a full pass-through cost, thus, fully protecting the utility from such costs.

The South African Renewable Energy Council argues that Eskom’s refusal to sign PPAs for the 37 projects, as well as a PPA for a concentrated solar power project procured in an earlier bid window, is holding back investments worth nearly R60-billion and preventing 13 000 construction jobs.

Gigaba reports that the National Energy Regulator of South Africa will be approached this month on the “hardship” Eskom is experiencing and that Eskom would submit the case for “soft support” ahead of the 2018 tariff adjustment.

Eskom is finalising a revenue application to Nersa, which could translate into a 19.9% hike for 2018/19. In 2017/18 the tariff increase was 2.2%.

The Finance Minister said the DoE was working on an interim mechanism until the next tariff application, but that details of the soft support for Eskom would be revealed in due course.

"What we are expressing is a deep appreciation of the weakening the Eskom balance sheet. The Eskom balance sheet is under pressure. And so there is an urgency for us to provide assistance so that they are able to continue implementing the capital build programme and fulfill their mandate."